Redefining the MRO supply chain

The relationship between strategic outsourcing and e-commerce

by  Ron Fijalkowski

As we progress into the 21st century, the ways in which we conduct our daily tasks will continue to grow and improve, all thanks to science and technology. 

One area where we can see this continuous betterment is on the Internet. The capabilities of the Internet have expanded immensely, making e-commerce an increasingly valuable tool. In the world of distribution, e-commerce has come to be a viable alternative to the traditional outsourcing solution of integrated supply. 

However, when coupled with integrated supply, e-commerce has the capability of redefining the MRO supply chain.

As a distributor, it is important to be aware of this electronic method of supply chain management – business will be directly affected by it. As companies move more toward incorporating e-commerce into business practices, it becomes necessary for the distributor to understand the reasons behind a customers' decision and develop ways to adjust methods of service accordingly. While some distributors have already accepted this modern procurement solution, making it easy for their customers to conduct transactions online, e-commerce is not unanimously understood and embraced.

Therefore, to fully understand e-commerce as it relates to integrated supply, and to see the influencing factors behind customers' shift toward electronic procurement, the two supply chain management solutions must be compared and contrasted in relation to the four functions of supply chain management: conducting transactions, managing inventory, providing technical recommendations and on-site support.

Conducting transactions
The way in which transactions are conducted has a significant impact on a plant's overall supply chain. In the integrated supply model, the procurement process is an outsourced function. Plants relinquish all non-core business purchases to a third-party that, in turn, can achieve total cost savings in the supply chain. 

One cost reduction tactic is the cleansing and organization of the plant's data to ease the identification of products and vendors. This process eliminates the painstaking process of coordinating purchase orders, receipts and invoices to authorize payments. Integrated supply experts also achieve cost savings by introducing new products and processes, and consolidating part specifications.

The benefits of conducting transactions online complement those of using an integrated supplier to purchase inventory. By allowing access to an enormous amount of distributors from which to leverage supplies and aggregate demand (to potentially earn favorable pricing), the Internet can simplify the purchasing process for purchasing agents. 

E-commerce also addresses the overabundance of paperwork; online purchases reduce the costs associated with multiple paper, fax and phone orders, as well as entry and receipt activity. However, if the online purchase order is found to be inadequate, phone calls and/or paperwork (i.e., time and money) are needed to clarify the order.

Managing inventory
Inventory management is an important element of integrated supply. The total store room – from identifying and eliminating inventory redundancies, to establishing minimum and maximum inventory levels and ordering and stocking replenishments – is managed by a fully skilled and qualified integrated supplier knowledgeable about the plant's inventory. 

This value-added element of outsourcing allows plant personnel to better focus on their core competencies, a direct improvement to the bottom line.

In contrast, e-commerce does not have a skilled expert to manage plant inventory. Instead, the Internet provides value through its ability to inexpensively broadcast data, such as the total amount of inventory held in the channel. By allowing purchasing personnel to view supplies across multiple locations in the supply chain, inventory levels can be managed. 

In addition, broadcast data regarding stock at other sites or branch locations can permit companies (and integrated suppliers) to share inventory, while minimizing service outages.

Providing technical recommendations and on-site support
Integrated suppliers have technical representatives to answer questions, and identify and examine problems. These technical representatives, or on-site advisors, serve as a source for technical assistance, as well as for purchasing stock and managing inventory levels. 

The foundation for store room management success requires an initial implementation process to identify and count on-hand inventory, a function that can only be performed by on-site personnel.

The Internet provides a cost-effective means of answering many technical questions and can provide passive sales support by allowing for the online exchange of information. 

However, this technical support does not match that offered by integrated supply. Addressing and solving more pressing issues or problems necessitates a human presence that is lacking with electronic media. The reality is that none of the pure business-to-business MRO Internet companies provide in-person technical recommendations.

A best-practice solutions
E-commerce is a practical alternative to the traditional model of integrated supply, but should be viewed in conjunction with it, serving as a component of a more strategic approach to materials management and procurement. 

With that perspective, and considering the four functions of supply chain management, it is clear that a coupling of e-commerce and integrated supply can deliver improved value 
and efficiency.

As e-commerce becomes a more viable option, plants will increasingly take advantage of this supply chain solution. Likewise, distributors need to be mindful of customers' increasing desire to conduct business online and be prepared to service their needs. Yet, they cannot compromise the technical expertise that on-site, personal communication provides.

As a distributor, it is important to understand emerging business processes and to adequately plan to meet the changing needs of customers. By using technology without sacrificing service, a distributor can grow its business as the Internet continues to evolve as a tool to streamline the supply chain process.

Ron Fijalkowski is the chief information officer of Strategic Distribution Inc. He was recently recognized by IDG's Computerworld as one of the business world's Premier 100 IT Leaders for 2002. SDI is a provider of industrial supply services to commercial and industrial customers that reduce costs and inefficiencies in the procurement and management of MRO materials. For more information about SDI, please visit www.in-plantstore.com.

back to top                                          back to online exclusives